M&A in 2013: Litigation Issues Affecting Mergers & Acquisitions

Transcription

1 Peter Stokes and Mark Oakes Fulbright & Jaworski L.L.P. 98 San Jacinto Blvd., Ste 1100 Austin, Texas M&A in 2013: Litigation Issues Affecting Mergers & Acquisitions

2 Speakers Peter A. Stokes Partner Fulbright & Jaworski, L.L.P. Austin, TX Mark Oakes Senior Associate Fulbright & Jaworski, L.L.P. Austin, TX

3 Continuing Education Information If you are requesting CLE credit for this presentation, please complete the evaluation that Fulbright will send via tomorrow. If you are viewing a recording of this web seminar, most state bar organizations will only allow you to claim self-study CLE. Please refer to your state s CLE rules. If you have any questions regarding CLE approval of this course, please contact your bar administrator. If you should have any questions regarding credit, please Terra Worshek at tworshek@fulbright.com. 3

4 Administrative Information Today s program will be conducted in a listen-only mode. To ask an online question at any time throughout the program, simply click on the question mark icon located on the tool bar in the bottom right side of your screen. We will try to answer your question during the session if time permits. Everything we say today is opinion. We are not dispensing legal advice, and listening does not establish an attorney-client relationship. This discussion is off the record. Anything we say cannot be quoted without our prior express written permission. 4

5 Multi-Jurisdiction Litigation Possible suits (1) in state and federal court where the target is located and (2) in the target s state of incorporation Additional risks (and costs) created by multiforum litigation Defense strategies to address the multi-forum issue Pros/cons of forum selection clauses and whether such clauses are enforceable 5

6 Financial Advisor Conflicts It is not uncommon for a target s financial advisor to have ties to the acquiring company or a potential bidder Such ties may create conflicts of interest that will be carefully scrutinized by Delaware courts Certain conflicts may increase the risk of (1) an order enjoining a shareholder vote and (2) a viable post-closing damages claim 6

7 Financial Advisor Conflicts (Cont d) El-Paso/Kinder Morgan The target s financial advisor: (1) owned 19% of the acquiring company; (2) controlled two board seats on the acquiring company; and (3) the lead banker for the target s financial advisor owned stock in the acquiring company The target hired a second financial advisor to address the potential conflict The Delaware Chancery Court denied a request to enjoin the transaction, but in doing so held that the plaintiffs had a reasonable probability of success in a post-merger damages claim 7

8 Financial Advisor Conflicts (Cont d) Del Monte The target s financial advisor had earned $66 million in fees from the acquiring company during the prior 2 years The target s financial advisor wanted to participate in providing financing to the buyer and delayed disclosure of this fact to the target The financial advisor encouraged the acquiring company to partner with another interested bidder in violation of a no teaming agreement and without consulting with the target The court enjoined the shareholder vote and certain deal protection provisions for twenty days 8

9 Financial Advisor Conflicts (Cont d) Takeaways: Boards should be proactive in determining whether conflicts of interest exist Disclosing potential conflicts matters A second financial advisor may reduce risk when a conflict becomes apparent, but a second advisor is not a panacea 9

10 Controlling Stockholder Transactions Heightened standard of review entire fairness Special committee must be functioning and should have power to negotiate and consider alternate transactions Recent cautionary tales in controlling stockholder context Southern Peru Copper Corporation 10

11 Proxy Disclosure Issues Once the target company issues its proxy statement, plaintiffs typically amend their claims to allege that the company failed to disclose all material information pertaining to the merger Common disclosure demands include: (1) financial projections; (2) information regarding financial advisor compensation and prior relationships with the advisor; (3) prior indications of interest and written offers; and (4) additional details regarding the fairness opinion 11

12 Proxy Disclosure Issues (Cont d) The risk of inadequate disclosure is a temporary injunction postponing the shareholder vote Hot button disclosure issues include (1) whether to disclose financial projections provided to the financial advisor and (2) disclosure of alleged financial advisor conflicts of interest The consequences of mooting the claims with an amended proxy potential award to plaintiff of attorneys fees 12

13 Settlement-Related Issues Potential benefits of settlement verses the cost Importance of the settling plaintiff showing that it adequately investigated its claims Viability of non-opt-out disclosure-only settlements in light of recent Delaware and Texas decisions 13

14 Post-Closing Damages Claims Historical reluctance to pursue post-closing damages claims Aggressive pursuit of post-closing damages claims may become more common in light of (1) increased scrutiny of disclosure-only settlements; (2) unwillingness of judges to enjoin transactions; and (3) settlement pressure caused by potential of large damage award 14

15 Questions Peter A. Stokes Partner Fulbright & Jaworski, L.L.P. Austin, TX Mark Oakes Senior Associate Fulbright & Jaworski, L.L.P. Austin, TX

16 Continuing Education Information If you are requesting CLE credit for this presentation, please complete the evaluation that Fulbright will send via tomorrow. If you are viewing a recording of this web seminar, most state bar organizations will only allow you to claim self-study CLE. Please refer to your state s CLE rules. If you have any questions regarding CLE approval of this course, please contact your bar administrator. If you should have any questions regarding credit, please Terra Worshek at tworshek@fulbright.com. 16

17 AUSTIN BEIJING DALLAS DENVER DUBAI HONG KONG HOUSTON LONDON LOS ANGELES MINNEAPOLIS MUNICH NEW YORK PITTSBURGH-SOUTHPOINTE RIYADH SAN ANTONIO ST. LOUIS WASHINGTON, D.C FULBRIGHT [ ]